Overview

Market Mulitples provides a simple way to conduct a bank valuation. Typically, this type of valuation is either used as a simple back of the envelope calculation or as a check on other methods.

Common Multiples

• Price/Earnings - alternates to earnings numbers such as EBIT and EBITDA are not used, primarily because the interest expense is significant part of the banking business. Variations that add interest back into the calculation are sometimes used.
• Price/Book Value
• Price/Tangible Equity - where tangible equity is the value of equity that represents tangible assets, that is, it excludes intangible assets such as patents and goodwill.
• Return on Equity (ROE)
• Return on Tangible Equity (ROE)
• Return on Assets

Multiples Regression

One way to compare the multiples of various banks is through a multiple regression.